Monday, November 03, 2008

Prediction markets are irrational - the McCain penny stock example

Whatever the outcome tomorrow, we've extracted some useful knowledge from the process.

Prediction markets are no more rational than the stock market ...
McCain Is Now A Penny Stock

... John McCain's odds on Intrade drop to 9 cents on the dollar, a new low. (If you put a gun to our head and forced us to bet, we'd actually buy the contract at that level. We think Obama will win, but we certainly wouldn't give someone 10-to-1 odds on that.)...
I think the election is too close to call, but that might reflect my superstitious nature. There's no way, however, that Obama has a 90% certainty of winning.

So we shouldn't expect too much of prediction markets in the future.

Update 11/3/08: Ahh, but for a contrary perspective on those probabilities ...

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